Inflation is the FED's
explicit, stated goal. The FED wants prices to go up because that
raises GDP (gross domestic product) and makes debt cheaper to
service every year.
But alas, real income isn't keeping pace - it's declining. Median
household income is down 7% since 2000, but if we strip out the top
1% households, the decline for the bottom 99% would be more than 7%.

And if we strip out
the top 10% households, the decline of the bottom 90% of households
is much more than 7%.

Household income for the bottom 90% has been stagnant for four
decades:

So the FED is robbing the purchasing power of our money as a matter
of policy.

In simple terms, the
FED is stealing purchasing power and delivering the stolen wealth to
the financiers and banks, who borrow money from the FED for
near-zero rates of interest.
And what do the banks do with the money the FED stole from us? They
loan it back to us at 16% (or more). Those of us who haven't just
emerged from bankruptcy get offers from banks on a weekly basis: for
transfers of credit card debt, new credit cards, cash advances, auto
loans, home equity lines of credit, you name it.
A recent offer from a Too Big to Fail bank offered a teaser
rate of 0% for a few months, after which the credit card's interest
rate reverted to 16%.
This is how the FED rebuilds the TBTF banks' insolvent balance
sheets: it strips purchasing power from wage earners and savers and
gives the banks free money which they loan to debt-serfs for
somewhere between 5% and 24%, depending on the length of the loan
and the collateral (or lack thereof).
As Harun explained, the FED steals our wealth, transfers it to the
banks who then loan our money back to us at 16%.
It almost makes you wish the FED would just steal the money openly
and give it to the banks and top .01% of financiers directly,
without the sleight of hand of inflation and zero interest rate
policy (ZIRP).
The FED implicitly claims (and many foolishly believe the
propaganda) to be the ultimate financial power in the Universe:

If the FED is so powerful,

Why
is it so cowardly and fearful that it has to cloak its theft
of our money and its transfer of the wealth to the banks?

What's it so
afraid of?

That we
might wake up to the fact that we're being FED to the
sharks, every day, one morsel at a time?

Lest you think the phrase
"death of the middle class" is hyperbole, please examine
these two charts, keeping in mind the middle class by
definition must be in the middle of income/wealth
distribution - conventionally, between 40% and 80%, i.e.
the 40% between the bottom 40% and the top 20%.

And when do investment
returns exceed economic growth? When the Federal Reserve
makes credit very cheap for financiers and speculators,
which drives up asset prices as everyone with access to
cheap credit bids up assets.

Low interest rates and
free-flowing credit inflate bubbles. We can discern an
implicit agenda in the FED's policy of making credit
cheap and abundant: since income for the bottom 90% is
stagnating, the only way to boost consumption and debt
is to inflate an asset owned by middle class
households: housing.

The FED responded to the
housing crash with an unprecedented policy of buying
over $1 trillion in home mortgages (mortgage-backed
securities), roughly 10% of all existing mortgages in
the U.S.

In conjunction with the
FED's other policies (purchasing Treasury bonds and
relaxing banking rules) and the opening of the
loose-lending FHA spigots, housing recovered nicely -
until the FED slackened the pace of its purchases of
bonds and mortgages.

In essence, the FED's
bubble-blowing forced every homeowner into becoming a
speculator.

There's another agenda at
work of course: increasing debt and bank profits derived
from debt. What better way to insure banking profits
than to spark a speculative bubble in the core asset of
the middle class - housing.

Rising prices created
temporary (and enticing) home equity that could be
tapped with a loan (HELOCs - home equity line of
credit), and the temptation to selling out and moving up
the food chain to a bigger home and bigger mortgage was
equally compelling.

Even better, banks and
Wall Street had perfected the securitization of
once-safe home mortgages. Banks had no need to take on
the risk of holding mortgages - the big money was in
originating the mortgages, packaging them into
securities and selling the tranches to investors.

The much-ballyhooed
"ownership society" turned out to be ownership of debt,
not equity. Debt is profitable for banks; people owning
homes free and clear is not.

In effect, the FED
sacrificed the foundation of middle class wealth -
stable housing values - to boost bank profits. Take a
look at what happened to financial profits in the
2002-2007 housing bubble: they skyrocketed to new
heights.

As the current housing
bubble deflates, the investor-buyers who fueled the
rally are exiting en masse: what's the value of an asset
when the bid vanishes, i.e. there's nobody left who's
willing to pay today's prices?

The FED has failed to
restore middle class wealth with its latest housing
bubble, and the costs of the bubble's collapse will fall
not on the FED but on those who believed the recovery
was more than FED manipulation.